NATWEST SOUTH EAST PMI

KEY FINDINGS

n Business Activity Index rises 16.5 points to signal only a slight decline n Softest reduction in new orders since March n Output expectations climb to four-month high

NATWEST SOUTH EAST PMI ® Private sector output approaches stabilisation in June

The headline NatWest South East Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – climbed a survey-record 16.5 points from May to 49.3 in June, signalling a significantly softer reduction in private sector activity.

The seasonally adjusted New Business Index remained below the 50.0 neutral mark for a fourth successive month during June, to signal a further reduction in order book volumes in the South East. Panellists linked the fall to weak demand conditions. That said, the index rose 15.8 points from May to indicate a substantially softer rate of decline, with some firms reporting that looser restrictions had allowed companies to restart operations.

Incoming new business also fell at the UK level during June, with the rate of contraction slightly outpacing that seen in the South East. Private sector firms in the South East remained confident with regards to activity over the coming 12-months in May. In fact, sentiment improved further and reached a four-month high. Anecdotal evidence linked optimism to looser lockdown restrictions and hopes of an economic recovery once the pandemic is under control.

Moreover, the level of positive sentiment in the South East exceeded that recorded at the UK level in June.

Workforce numbers in the South East’s private sector declined again in June, as has been the case in all but one of the past 11 months. Companies frequently mentioned redundancies and lay-offs as a result of the COVID-19 pandemic. The rate of job shedding softened slightly from May but remained marked overall.

That said, across the 12 monitored UK regions, only the North West and the East Midlands recorded a softer reduction in staff numbers than the South East.

Private sector fi rms in the South East recorded another reduction in the level of outstanding business during May, extending the current sequence of decline to 21 months. Panellists reported that lower activity requirements had allowed them to direct resources to clearing backlogs. The rate of depletion was sharp, albeit the softest for four months.

At the sector level, manufacturers drove the overall decline in June, recording a further substantial reduction in backlogs and outpacing the fall seen at services fi rms.

Private sector fi rms in the South East recorded an increase in input prices for the fi rst time in three months during June. Anecdotal evidence linked the rise to greater staff costs, as well as costs for personal protective equipment (PPE). The rate of infl ation was marginal overall.

At the sector level, manufacturers drove the overall rise, recording a moderate uptick in cost burden. Meanwhile, input prices at services fi rms fell again.

The seasonally adjusted Prices Charged Index posted only just below the 50.0 nochange mark in June, to signal broadly stable selling prices at the South East’s private sector fi rms following three months of successive declines.

By comparison, average selling prices fell at the UK level in June, although the decline eased since May.

South East Business Activity Index sa, >50=growth since previous month

70

60

50

40

30

20

10

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Source: NatWest, IHS Markit

COMMENT Stuart Johnstone, Managing Director, London & South East, Corporate & Commercial Banking

“The South East’s private sector moved closer to stabilisation in June, with the Business Activity Index recovering a survey-record 16.5 points and signalling only a slight overall reduction in output. The decline in new business also eased, with the latest drop the softest in the current four-month sequence and only marginal. “At the same time, the 12-month outlook for activity improved again, with sentiment climbing to the highest since February amid hopes of an economic recovery and improved demand conditions once the pandemic is under control. “Despite some positive signs, the South East’s private sector remains, for now, mired in a downturn. Ongoing COVID-19 disruptions and stifl ed demand conditions continued to weigh on the sectors performance, although it is clear that the worst is now behind us.”